Gift to grandparents and school fees

[leicester tiger]

I am a higher rate taxpayer and am refinancing my property to pay school fees for my son.

He will be living with my parents (ie his grandparents) because they are in the catchment area for the school and he will be eligible for a scholarship once he has 3 yrs residency.

My plan is to gift £30,000 to my mother who has no taxable income so that it can be placed in the best interest bearing account we can find. We will also have the child benefit paid inot that account. My mother can then earn interest gross and draw down from that account to pay the school fees.

Is this "upwards gift" proofed against any reservation of benefit on my part in respect of income tax on the interest earned

[King_Maker]

This "gift" appears to have strings attached.

And why are you giving your mother the Child Benefit?

As a tax avoidance scheme, I fear that it is unlikely to fly.

[johnfkavanagh]

What you appear to be describing is an arrangement which is a statutory settlement as defined by section 660G of the Income and Corporation Taxes Act 1988.

You are the settlor of the arrangement, your mother is the trustee and your minor child is the beneficiary. One consequence of the existence of this settlement is that, when the income arising within the settlement is used for the benefit of your child, it will be treated as your income for tax purposes. Another is that your mother may well not be entitled to receive the interest gross because she is not the beneficial owner of the funds.

Sorry to disappoint but this kind of planning was legislated against about 80 years ago! There may be more effective ways of achieving the intended objective.

John Kavanagh
UK Tax Consulting Ltd
Chartered Tax Advisers
www.uktaxconsulting.co.uk
mail@uktaxconsulting.com
Tel: 020 7060 1660
Fax: 020 7060 1663

[leicester tiger]

Thanks for the responses - guess we need to think again!